What Is Faith-Based Investing?
Despite what you may think, faith-based investing doesn’t involve the purchase and sale of stocks in religious organizations. But that doesn’t mean religion and investing don’t mix.
What exactly is faith-based investing?
Faith-based investing is just like any other type of investment philosophy, in that it aims to maximize investor returns. Where it does differ from traditional, secular investment plans is how individual investors choose their investment professionals and vehicles. Individuals who invest using faith-based principles often choose managers, companies, and investments that align with their own religious values. That’s why this strategy is also called values-based investing.
Just about every major denomination has an opinion about how to deploy cash in support of favored causes and away from those that contradict their views and values. We break down some of the main themes in faith-based investing in this article, as well as how investing fits into some of the world’s largest religions.
Key Takeaways
- Faith-based investors want to generate returns by choosing investments that align with their religious beliefs and values.
- Many faith-based investment strategies focus on ethically and socially responsible investment.
- The majority of faith-based styles exclude investment in companies that are deemed immoral, such as alcohol, tobacco, and weaponry companies.
- Faith-based investing, like conventional investing, doesn’t guarantee returns.
- This style is subject to the same risks as any other investment style, such as economic, interest rate, and geopolitical risks.
The Basics of Faith-Based Investing
While churches or other places of worship do not sell securities directly to investors, the investment principles followed by religious groups are often publicly available and easy to find. The basic premise behind faith-based investing isn’t any different than any other strategy: Investors put their money into vehicles that they hope will generate a good return. But rather than chase any hot pick, these investors make decisions that align with their own principles, often taking into account an environmental, ethical, and social focus.
For instance, a Christian investor may enlist the professional assistance of a Christian investment company, which only offers investments that align with the principles of the faith. Most of these firms avoid investing in companies that are involved with tobacco, adult entertainment, and gambling, for example.
The investment strategies advocated by some religious groups are provided below. This list is by no means comprehensive. Keep in mind that they are general guidelines and are in no way meant to represent the exact strategies and obligations of any particular institution or congregation. The interpretations of these investment styles vary and are based on the investor’s religion. They may even differ among denominations.
Knowing your priorities—doing good, generating a return, or both—before you dive in will help guide your faith-based investment strategy.
Christian Investors
Do you know the saying that all Catholics are Christians, but not all Christians are Catholics? The same principle applies to investors, including those who belong to the faith. You may see investment principles in these faiths called values-based investing or Biblically Responsible Investing.
Here’s a look at the basic investment styles of two Christian groups: Catholics and Protestants.
Catholics
Investors who adhere to the Catholic faith follow principles outlined by the Catholic Framework for Economic Life. These 10 faith-based guidelines demonstrate how people should take part in the economy and finance—that is, by basing their decisions on “human dignity and the moral law.”
Faithful Catholics who want to put their money to work in a manner consistent with Catholic values often avoid investing in firms that:
- Engage in gender and/or racial discrimination
- Support abortion and contraceptives
- Promote and/or fund embryonic stem cell research
- Produce weapons of mass destruction
- Take part in the adult entertainment industry
Instead, Catholic investors favor firms that support human rights, environmental responsibility, and fair employment practices via the support of labor unions.
Multiple entities provide investment guidance that supports Catholic values, including investment firms and mutual fund firms that adhere to guidelines for investors who aren’t able to take the do-it-yourself approach. For instance:
- Catholic Investment Services seeks strong returns for its clients while keeping religious principles at the heart of its investment strategy. The firm serves more than 50 Catholic institutions, has a list of 800 restricted companies, and has more than $1 billion in assets under management (AUM).
- The LKCM Aquinas Fund follows the socially responsible investment (SRI) guidelines set by the U.S. Conference of Catholic Bishops. It aims to maximize investor capital in the long term with Catholic investing principles in mind. Established in July 2005, the fund tracks the S&P 500. Its five-year average annual total returns were 13.78% as of Dec. 31, 2023.
Protestants
Hard work and thriftiness are integral to the traditional Protestant work ethic, so working and saving are often closely related. Protestant denominations include a range of beliefs, from liberal to conservative. But they all share one principle: The faith encourages followers to make investments based on broad Christian values, such as social consciousness.
The investment policies of some of these religious organizations are often easy to find, such as from the guidelines of investment within the Church of England. The church has an Ethical Investment Advisory Group, which provides support in areas relating to investment choices, policies, relationships between investment managers and investors, and investment maintenance.
The board seeks investment in vehicles that promote the social and ethical concerns of the church and its teachings while excluding companies that engage in a variety of activities, such as:
- Firearms
- Addictive behavior, such as tobacco and gambling
- Adult entertainment
- Embryonic cloning
- High-interest lending, such as payday loans
A number of mutual funds follow Protestant principles. Here are a couple of examples:
- GuideStone Funds provides investments that are socially screened and based on Christian values. The company serves investors of all kinds, from institutional to individual investors. Fund offerings range from U.S. and international equities to fixed income. The firm had $16.7 billion in AUM as of June 30, 2023, making it one of the largest faith-based fund managers in the United States.
- New Covenant Funds makes “investments consistent with social-witness principles adopted by the General Assembly of the Presbyterian Church (USA).” The firm avoids investments in companies involved in gambling, alcohol, and firearm-related issues.
Islamic Investing
Like many faiths, Islamic law, or Shariah, teaches followers to live by a set of guidelines while they seek returns on their investments. Investors follow halal, or permitted, principles, which provide a disciplined approach to investing. This approach is considered conservative, as well as both ethically and socially responsible.
These principles prohibit investment in the following areas or ways:
- Short-term speculation, as it is considered gambling
- Investments that pay interest, such as money market accounts and traditional savings accounts
- Companies that engage in and profit from alcohol, pornography, and gambling
- Companies with heavy debt because they pay interest on loans
- Pork-related businesses
A variety of mutual fund firms offer strategies based on Islamic values, including:
- Amana mutual funds, which are offered through Saturna Capital. These funds avoid bonds and other interest-bearing securities, while seeking protection against inflation by making long-term equity investments.
- Allied Asset Advisors established the Iman Fund specifically for Muslims in 2000. This is another mutual fund that adheres to Shariah principles by investing capital in halal investments.
Investing in the Jewish Faith
Jewish values help guide investors who want to align their faith with their investment strategies. Philanthropy and diversification are key principles dictated in the Talmud. Throughout Jewish religious teachings, there are multiple references to the importance of giving and diversification, and those references are a cornerstone guiding the tenets of this faith’s investment practices.
While less formal in terms of guidance than some of the other religions, socially responsible investing is often closely associated with Jewish-oriented investment strategies. This fits into several of the faith’s commandments and mitzvot, or good deeds, that lead investors to do good with their money. This includes investments that address:
- Climate change
- Social justice
- Local or global issues
- The engagement of shareholders
Mutual funds that follow Jewish investment strategies provide multiple interpretations of Jewish investing. For example:
- The iShares MSCI Israel ETF, or exchange-traded fund (EIS), was launched in March 2008. A non-diversified fund, it invests primarily in Israeli securities that make up and track a market capitalization-weighted index designed to measure the performance of all-sized segments of the Israeli equity market. It had net assets of $131.4 million as of Jan. 18, 2024.
- For more funds in this vein, the Jewish Funders Network provides the “Greenbook: A Guide to Jewish Impact Investing,” a 2021 handbook on investing with Jewish values that includes some strategies and types of assets for investors with such a goal to consider.
$2.9 trillion
Assets under management in Canada’s faith-based investment industry in 2023
Does Faith-Based Investing Work?
Faith-based investing can be just as successful (or unsuccessful) as any other investment style. This means there’s no guarantee that you generate better returns just because your investments align with your religious principles.
This investment style faces the same challenges as other philosophies do, and faith-based investments are subject to the same amount of risk. Economic conditions, market sentiment, changes in government policy, interest rates, and geopolitical issues are just some of the issues that faith-based investors face.
That’s why it’s important to do your own research. While you can find investments that align with your faith, make sure they fit your financial profile, economic situation, and short- and long-term goals. When in doubt, you can always get help from a financial professional who subscribes to your principles. They can recommend stocks, bonds, mutual funds, ETFs, and other investments based on your own situation and faith.
While you can’t buy investments from a church, you can donate investments to a church, if you prefer to give rather than to receive. An appropriate gift to your favorite religious institution not only helps support the institution that embodies principles you believe in, but also may provide a tax deduction in return.
Estate planning is another way for investors to transfer wealth in a manner that supports personal religious beliefs when they pass away. There are options available in the market if you choose to let your religion help provide guidance for assigning your wealth after your death.
What Are Investment Strategies?
The term “investment strategy” refers to a set of principles designed to help an individual investor achieve their financial and investment goals. It guides an investor’s decisions based on goals, risk tolerance, and future needs for capital.
These strategies can vary from conservative (where they follow a low-risk strategy with the focus on wealth protection) to highly aggressive (seeking rapid growth by focusing on capital appreciation). Investors can use their strategies to formulate their own portfolios or do so through a financial professional. Strategies aren’t static, which means they need to be reviewed periodically as circumstances change.
What Is Socially Responsible Investing (SRI)?
Socially responsible investing (SRI), also known as social investment, is an investment that is considered socially responsible due to the nature of the business that the company conducts. A common theme for SRI is socially conscious investing.
Socially responsible investments can be made in individual companies with good social value, or through a socially conscious mutual fund or ETF.
What Are Assets Under Management (AUM)?
Assets under management (AUM) represent the total market value of the investments that a person or entity manages on behalf of clients.
AUM definitions and formulas vary by company. In calculating assets under management, some financial institutions include bank deposits, mutual funds, and cash. Others limit it to funds under discretionary management, where the investor assigns authority to the company to trade on their behalf.
What Is Market Sentiment?
Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market.
In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.
The Bottom Line
Faith-based investing is just like any other type of investment philosophy, in that it aims to maximize investor returns. The main difference from some other types of investing is the way in which individuals choose their investment professionals and asset vehicles.
Pursuing faith-based investing is not better or worse than traditional, secular investment plans, but doing so allows investors to make selections through the lens of their religious values.